Soaking up the sun: Tax Breaks Propel Area Solar Firms, But U.S. Still Lags

Nov 24, 2008 (Albuquerque Journal - McClatchy-Tribune Information Services via COMTEX) -- EE | Quote | Chart | News | PowerRating -- You can see federal energy tax policy in action, rising out of the ground on the mesa south of Albuquerque as workers rush to finish the new Schott Solar factory.

If all goes according to schedule, some 350 workers will begin turning out power systems next spring that generate electricity from the sun. Federal tax policy, which provides tax breaks for installing solar energy, is a big reason why. Congress' decision last month to extend the tax breaks, industry officials say, is vital to the future of the U.S. renewable energy industry.

"It's critically important for our business," said Zane Rakes, who heads Schott's growing operation, as he stood in the cavernous hall that will soon house the German industrial firm's first U.S. solar energy production lines.

Down the street from Schott's construction site, the parking lot is nearly full at Advent Solar, an Albuquerque-based solar energy manufacturing firm that last month announced a 10-year, $350 million deal with the German firm Deutsche Solar AG.

Naresh Baliga, Advent's vice president for marketing, echoed Schott's relief at the congressional action. "This passage provides a lot of momentum in the industry," Baliga said.

Schott and Advent are among 16 New Mexico companies manufacturing solar energy-related products, according to the Solar Energy Industry Association. An industry-financed study released in September concluded that extending the tax credits for eight years, as Congress did in October, could create 12,000 solar energy industry jobs in the state.

The congressional action to extend the tax credits also means that more of the electricity coming out of your light sockets in coming years will come from solar energy, said Ricardo Acosta, manager of resource planning for El Paso Electric, which serves parts of southern New Mexico. El Paso just signed a deal to build a new solar plant in the southern part of the state.

"If it wasn't for the tax credit, a lot of these projects wouldn't go forward," Acosta said.

Behind the times

But the German connections to both Schott and Advent also illustrate a central point about the U.S. renewable energy industry: We are behind the Europeans. And according to an analysis by Tufts University economist Gilbert Metcalf, the reason is the European choice to pursue much more aggressive policies than the relatively modest tax incentives that Congress recently extended.

Germany may not have nearly the sunshine that you find in the Southwest, Metcalf said, but it has a lot more solar energy.

Congress extended the tax credits as part of the massive financial industry bailout bill. Without the action, the credits would have expired at the end of this year, and backers of solar and other renewable energy said the industry would suffer as a result. The tax credit allows individuals and businesses to deduct 30 percent of the cost of a solar power system. That means if someone installs a $10,000 solar system on their roof, they save $3,000 on their taxes, explained Gail Ryba of the New Mexico Coalition for Clean Affordable Energy.

The tax credits are also central to two major utilityscale solar power plants in New Mexico, the El Paso Electric project and a similar one in the planning phases for Public Service Company of New Mexico, which serves Albuquerque and much of the rest of the state, according to Jason Marks, chairman of the New Mexico Public Regulation Commission.

Combined with shorterterm tax credits for producing wind power, the legislation helps keep the renewable energy industry going, Marks said.

But the effect, Tufts University economist Metcalf noted, is modest.

In a study published earlier this year, Metcalf compared the rate of renewable energy adoption in Europe with that in the United States. In Europe, government policies guarantee high prices for renewable energy production, creating an economic incentive and shifting costs to energy consumers.

In comparison, U.S. policy has been primarily focused on tax breaks for producing renewable energy, which has the effect of using tax money to pay for it.

It may not be a cheap way to do it, Metcalf said, but it has gotten the job done.

In 1990, Europe had half the installed renewable energy capacity of the United States. Now Europe, using the more aggressive pricing mechanisms, has double the renewable energy capacity that we have, according to Metcalf. While U.S. renewable energy has grown at 3 percent per year since 1990, Europe's has grown at 17 percent.

Our political system tends to favor tax incentives because elected officials get the perceived political benefit of giving tax breaks to constituents, Metcalf said.

Lack of stability

The European renewable energy industry has also benefited from stable government policies, Advent's Baliga noted. In the U.S., repeated changes in incentives, exemplified in the fight to extend the tax credits, has led to a stop-start pattern in the renewable energy industry, he said.

Even with tax credits, solar energy remains more expensive than the alternatives. Wind power is approaching the point at which it can be competitive with natural gas, coal and nuclear power, Marks said. But Metcalf's analysis shows that solar energy is still at least twice as expensive as conventional energy sources, even with the tax benefits, which cut the cost of solar-generated electricity 25 percent to 30 percent.

It will take more than the current tax incentive structure for New Mexico's renewable industry to really take off, said Dave Simmons, a solar energy advocate and owner of Albuquerque-based Everguard Roofing. To really get things going, Simmons said, New Mexico needs rules requiring utilities to pay more for the electricity generated by rooftop solar panels.

"That's what kick-starts an industry," he said.

For now, though, the tax incentives look good to Rakes as he looks over the Schott Solar construction site. Two buildings are already up, and the manufacturing equipment is being installed. But there is room for more factory buildings on Schott's 80-acre site.

"You see we have room to grow," he said.

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